Sea Commercial Inc. vs.

CA

[G.R. No. 122823. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due and observe honesty and good faith.

The principle of abuse of rights stated in the above article, departs from the classical theory that he who uses a right injures no one. The modern tendency is to depart from the classical and traditional theory, and to grant indemnity for damages in cases where there is an abuse of rights, even when the act is not illicit.[5] Article 19 was intended to expand the concept of torts by granting adequate legal remedy for the untold number of moral wrongs which is impossible for human foresight to provide specifically in statutory law.[6] If mere fault or negligence in ones acts can make him liable for damages for injury caused thereby, with more reason should abuse or bad faith make him liable. The absence of good faith is essential to abuse of right. Good faith is an honest intention to abstain from taking any unconscientious advantage of another, even through the forms or technicalities of the law, together with an absence of all information or belief of fact which would render the transaction unconscientious. In business relations, it means good faith as understood by men of affairs.[7] While Article 19 may have been intended as a mere declaration of principle [8], the cardinal law on human conduct expressed in said article has given rise to certain rules, e.g. that where a person exercises his rights but does so arbitrarily or unjustly or performs his duties in a manner that is not in keeping with honesty and good faith, he opens himself to liability. [9] The elements of an abuse of rights under Article 19 are: (1) there is a legal right or duty; (2) which is exercised in bad faith; (3) for the sole intent of prejudicing or injuring another. [10] The issue whether JII is entitled to recovery on its counterclaim for unrealized profit in the twenty one (21) units of Mitsubishi power tillers sold by SEACOM to FSDC was resolved by the trial court in favor of JII on the basis of documentary evidence[11] showing that (1) JII has informed SEACOM as early as February 1977 of the promotions undertaken by JII for the sale of 24 contracted units to FSDC and in connection therewith, requested a 50% discount to make the price competitive, and to increase the warranty period for eight months to one year. In said letter Jamandre clarified that they were not amenable to SEACOMs offering directly to FSDC and to be only given the usual overriding commission as we have considerable investments on this transaction. (2) In response, the general sales manager of SEACOM declined to give the requested 50% discount and offered a less 30% less 10% up to end March xxx on cash before delivery basis, granted the requested extension of the warranty period and stated that we are glad to note that you have quite a number of units pending with the FSDC. The trial court ruled that with said information, SEACOM dealt directly with FSDC and offered its units at a lower price, leaving FSDC no choice but to accept the said offer of (SEACOM). In affirming the judgment of the of the trial court, the Court of Appeals held that by virtue of the dealership agreement the competition in the market as regards the sale of farm equipment shall be between JII, as the dealer of SEACOM, and other companies, not as against SEACOM itself, the Court stated: However, SEACOM not satisfied with the presence of its dealer JII in the market, joined the competition even as against the latter, and thereby changed the scenario of the competition thereby rendering inutile the dealership agreement which they entered into to the manifest prejudice of JII. Hence the trial court trial court was correct when it applied Art. 19 of the Civil Code in the case at bar in that appellant SEACOM acted in bad faith when it competed with its own dealer as regards the sale of farm machineries, thereby depriving appellee JII of the opportunity to gain a clear profit of P85,000.00. We find no cogent reason to overturn the factual finding of the two courts that SEACOM joined the bidding for the sale of the farm equipment after it was informed that JII was already promoting the sales of said equipment to the FSDC. Moreover, the conclusion of the trial court that the SEACOM offered FSDC a lower price than the price offered by JII to FSDC is supported by the evidence: the price offered by JII to FSDC is P27,167 per unit[12] but the prices at which

SEACOM sold to FSDC were at P22,867.00 for Model CT 83-2, P21,093.50 for model CT 83-E, and P18,979.25 for model CT 534. The fact that SEACOM may have offered to JII, in lieu of a requested 50% discount, a discount effectively translating to 37% of the list price and actually sold to FSDC at 35% less than the list price [13] does not detract from the fact that by participating in the bidding of FSDC, it actually competed with its own dealer who had earlier conducted demonstrations and promoted its own products for the sale of the very same equipment, Exh. N for the plaintiff confirms that both SEACOM and Jamandre participated in the bidding.[14] However, the SEACOM was awarded the contract directly from Manila. [15] The testimony of Tirso Jamandre that JII was the sole representative of SEACOM in the local demonstrations to convince the farmers and cooperative officers to accept the Mitsubishi brand of equipment in preference to other brands, was unrebutted by SEACOM. Clearly, the bad faith of SEACOM was established. By appointing as a dealer of its agricultural equipment, SEACOM recognized the role and undertaking of JII to promote and sell said equipment. Under the dealership agreement, JII was to act as a middleman to sell SEACOMs products, in its area of operations, i.e. Iloilo and Capiz provinces, to the exclusion of other places,[16] to send its men to Manila for training on repair, servicing and installation of the items to be handled by it, and to comply with other personnel and vehicle requirements intended for the benefit of the dealership.[17] After being informed of the demonstrations JII had conducted to promote the sales of SEACOM equipment, including the operations at JIIs expense conducted for five months, and the approval of its facilities (service and parts) by FSDC,[18] SEACOM participated in the bidding for the said equipment at a lower price, placing itself in direct competition with its own dealer. The actuations of SEACOM are tainted by bad faith. Even if the dealership agreement was amended to make it on a non-exclusive basis,[19] SEACOM may not exercise its right unjustly or in a manner that is not in keeping with honesty or good faith; otherwise it opens itself to liability under the abuse of right rule embodied in Article 19 of the Civil Code above-quoted. This provision, together with the succeeding article on human relation, was intended to embody certain basic principles that are to be observed for the rightful relationship between human beings and for the stability of the social order.[20] What is sought to be written into the law is the pervading principle of equity and justice above strict legalism.[21] We accordingly resolve to affirm the award for unrealized profits. The Court of Appeals noted that the trial court failed to specify to which the two appellees the award for moral and exemplary damages is granted. However, in view of the fact that moral damages are not as a general rule granted to a corporation, and that Tirso Jamandre was the one who testified on his feeling very aggrieved and on his mental anguish and sleepless nights thinking of how SEACOM dealt with us behind (our) backs,[22] the award should go to defendant Jamandre, President of JII. WHEREFORE, the judgment appealed from is AFFIRMED with the modification that the award of P2,000.00 in moral and exemplary damages shall be paid to defendant Tirso Jamandre. Costs against appellant. SO ORDERED.